The Applicable Law

1. The Applicable Law

2. Which law? • Uniform Law • CISG • Other conventions (e.g. transportation) • Municipal law • Determined by the parties • Determined by the forum • Customary law (Incoterms, …) - the law merchant • “Principles”

3. Article 9 CISG (1) The parties are bound by any usage to which they have agreed and any practices which they have established between themselves. (2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.

4. Article 3(2) Rome I Regulation: • 2. The parties may also choose as the applicable law the principles and rules of the substantive law of contract recognised internationally or in the Community.

5. Law merchant (lex mercatoria) - history • Magna Charta libertatis 1215 • “All merchants shall have save conduct to go and come out of and into England, and to stay in and travel trough England by land and water for the purposes of buying and selling, free of legal tools, in accordance with ancient and just customs". • Lord Mansfield : »Mercantile law is not the law of a particular country but the law of all nations«.

6. Law merchant (lex mercatoria) - history j • Medilaeval Lex mercatoria • National codifications • Int’l codifications (conventions on uniform law • (Nova, modern) lex mercatoria

7. Law Merchant • Autonomous • Anational • Uncodified

8. Examples • Incoterms • UNIDROIT principles • European principles • (CISG)

9. When applicable • Explicit choice of the parties • Implied terms of contract

10. Popular with arbitrators • neutrality • Simple to ‘handle’ – no conflict law needed • Does not require knowledge (application) of foreign law • Takes into account the specific features of int’l transactions • The arbitrator can avoid a result, her does not want

11. Dangers • Bypass of the (otherwise) applicable municipal law • Sometimes the choice of lex mercatoria can be questionable • It is too undefined

12. Unification of law • Purpose • Unification of conflict rules • Unification of substantive rules • Uncitral • ICC

13. Uncitral • International Sale of Goods • Convention on the Limitation Period in the International Sale of Goods 1974 • CISG 1980 • Ottawa conventions (int’l financial leasing and int’l factoring) 1988 • Legal Guide on International Countertrade Transactions 1992

14. Uncitral • International carriage of goods • United Nations Convention on the Carriage of Goods by the Sea (Hamurg Rules) 1978 • (United Nations Convention on the Liability of Operators of Transport Terminals in International Trade, 1991

15. Uncitral – Int’l arbitration • Uncitral Arbitration Rules 1976 • Recommendations to assist arbitral tribunals and other interested bodies with regard to arbitrations under the UNCITRAL Arbitration Rules, 1982 • UNCITRAL Conciliation Rules 1980 •  UNCITRAL Model Law on International Commercial Arbitration 1985 • UNCITRAL Notes on Organizing Arbitral Proceedings 1996 •  (Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958.

16. ICC • Incoterms, 2000 • Uniform Customs and Practice for Documentary Credits – UCP-500, 1993 • Uniform Rules for Collections, 1978 • Uniform Rules for Contract Guarantees, 1978 • Uniform Rules for a Combined Transport Document, 1975 • ICC Rules of Conciliation and Arbitration iz leta 1998 • UNCID Uniform Rules of Conduct for Interchange of Trade Data by Teletransmission, 1988.

17. ICC – model contracts • Sale of goods • Commercial agency • Distribution

18. Choice of law by the parties • Party autonomy • Predictability • A question of economic power • National confilict law • Rome Convention 1980 on the law applicable to contractual obligations • Regulation Rome I

19. Rome Convention Article 3(1, 3) • 1. The parties may at any time agree to subject the contract to a law other than that which previously governed it, whether as a result of an earlier choice under this Article or of other provisions of this Convention. Any variation by the parties of the law to be applied made after the conclusion of the contract shall not prejudice its formal validity under Article 9 or adversly affect the rights of third parties. • 3. A contract shall be governed by the law chosen by the parties. The choice must be express or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or a part only of the contract.

20. Limits Article 3(2) • 2. The fact that the parties have chosen a foreign law, whether or not accompanied by the choice of a foreign tribunal, shall not, where all the other elements relevant to the situation at the time of the choice are connected with one country only, prejudice the application of rules of the law of that country which cannot be derogated from by contract, hereinafter called "mandatory rules".

21. Choice of law merchant • Must a choice of law bi a choice of a municipal law? • Recent development

22. Rome Convention 1980 • Unified conflict law of the EU • Covers contractual obligations: • “contractual obligations in any situation involving a choice between the laws of different countries.” • Universal character: • “Any law specified by this Convention shall be applied whether or not it is the law of a Contracting State.”

23. Rome Convention 1980 • Choice by the parties • What if there is no (valid) choice? • Closest connection • Characteristic performance

24. Closest connection Article 4(1) • 1. To the extent that the law applicable to the contract has not been chosen in accordance with Article 3, the contract shall be governed by the law of the country with which it is most closely connected. Nevertheless, a severable part of the contract which has a closer connection with another country may by way of exception be governed by the law of that other country.

25. Characteristic performance • 2. Subject to the provisions of paragraph 5 of this Article, it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or, in the case of a body corporate or unincorporate, its central administration.

26. Exceptions • Immovable property • Carriage of goods • Consumer contracts • Employment contracts

27. Mandatory rules – Article 7 • 1. When applying under this Convention the law of a country, effect may be given to the mandatory rules of the law of another country with which the situation has a close connection, if and in so far as, under the law of the latter country, those rules must be applied whatever the law applicable to the contract. In considering whether to give effect to these mandatory rules, regard shall be had to their nature and purpose and to the consequences of their application or non-application. • 2. Nothing in this Convention shall restrict the application of the rules of the law of the forum in a situation where they are mandatory irrespective of the law otherwise applicable to the contract.

28. Problems relating to the applicable law • Public policy (ordre public) • Renvoi • Qualification • Mandatory rules (Eingriffsnormen, règles d'application immédiate)

29. Public policy • Rome Convention 1980, Article 16: • “The application of a rule of the law of any country specified by this Convention may be refused only if such application is manifestly incompatible with the public policy ("ordre public") of the forum.” • Austrian IPRG 1978, § 6: • “A provision of foreign law shall not be applied when its application would lead to a result irreconcilable with the basic tenets of the Austrian legal order. In its place, if necessary, the corresponding provision of Austrian law shall apply.”

30. Renvoi • Austrian IPRG 1978, §5 • “(1)Reference to a foreign legal order includes also its conflict rules. • If the foreign legal order refers back, Austrian internal rules (rules except conflict rules) shall be applied; if reference is made to a third jurisdiction, further references shall be considered, but internal rules of the legal order which itself does not refer to any other law or to which another law refers back for the first time shall be determinative.”

31. Renvoi • Rome Convention 1980, Article 15: • »The application of the law of any country specified by this Convention means the application of the rules of law in force in that country other than its rules of private international law.«

32. Renvoi - cases • Estonian inheritance (NL) • Torridon Corporation (D)

33. Torridon Corporation • German court (real • Torridon Corp. incorporated under Liberian law • The director and only shareholder lives in Canada • ‘Meetings’ of shareholders in Bahamas • Renvoi • GER Bah/CDN Liberia

34. Qualification • Procedural or substantive question? • Hausman v. Ripley (USA) • Derivative suit • According to which law? • Lex fori? • Lex causae? • Some legislations do prescribe, many do not.

35. Mandatory rules • ‘Normal’ mandatory rules • Can be contracted out • ‘Super’ mandatory rules • Irrespective the applicable law • Cannot be contracted out • Semi-public character

36. Rome I Regulation Art. 8(1): • “Mandatory rules are rules the respect for which is regarded as crucial by a country for safeguarding its political, social or economic organisation to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract under this Regulation.”

37. Mandatory rules – Article 7(1) RC • When applying under this Convention the law of a country, effect may be given to the mandatory rules of the law of another country with which the situation has a close connection, if and in so far as, under the law of the latter country, those rules must be applied whatever the law applicable to the contract. In considering whether to give effect to these mandatory rules, regard shall be had to their nature and purpose and to the consequences of their application or non-application.

38. Mandatory rules – Article 7(2) RC • Nothing in this Convention shall restrict the application of the rules of the law of the forum in a situation where they are mandatory irrespective of the law otherwise applicable to the contract.

39. Mandatory rules • Alnati (NL) • Mackaay v. American Express (NL) • Sanchez v. Iberia (NL)

40. Alnati (NL) • Alnati (NL) • Transportation of potatoes B – ARG • Choice of Dutch law • Dutch court applied certain B mandatory rules • HR: only the ‘scope rules’ have to be applied, ordinary mandatory rules not.

41. Mackaay v. American Express • US citizen lived in NY • Employed by a US Company (NY) • Choice of NY law in the contract • Manager of the subsidiary in Amsterdam • Consent of the Director of the District Labour Office

42. Sanchez v. Iberia • Manager of the subsidiary in Amsterdam • Fired without the permit • Stays in Holland • It was not reasonably to expect, that he would stay in the country